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Weihana

“Prosperity is the real way to balance our budget. By lowering tax rates, by increasing jobs and income, we can expand tax revenues and finally bring our budget into balance.”

– John F. Kennedy

Well that sounds appealing. But what does history say?

Kennedy made this speech in 1963. Since then tax rates have indeed been lowered. The top marginal income tax rate of about 90% about the time of this speech has reduced to about 30-40%. The lowest marginal income tax rate of about 20% at the time of the speech is about 10% today.

So tax rates have definitely been lowered. Have they increased jobs and income as forecasted? There is no clear correlation with the unemployment rate or the labour force participation rate. The latter has increased since tax rates were lowered, peaked in the late 90s and lowered since. Difficult with this data to say the claim is proved or disproved.

So what he was saying is that family and business income will increase leading to a balanced budget. Yet since the late 70s, early 80s median household income hasn’t kept pace with increases in productivity. Worse still, current real median household income is lower than the late 90s.

So it seems clear history is at odds with Kennedy’s predictions. Instead of increased family income and balanced budgets we have more families with two income earners, lower wage growth, an increased burden of federal tax revenue is contributed by workers whilst their income growth has stalled as the benefits of increased productivity go to corporations and those at the top who benefit from their ever rising profits.